Countries that practice civil law will be less likely to benefit from legal

Countries that practice civil law will be less likely

This preview shows page 3 - 5 out of 12 pages.

- Countries that practice civil law will be less likely to benefit from legal action - Due to less effective legal protection - strength of law, vigor of enforcement, stringency of disclosure requirements - Hostile takeover - Leveraged buyout - Competitors already know how company should be run - Voting rights - vote for board of directors (usually made by existing board; doesn’t really work) - Doesn’t work with civil law -> concentrated shareholders -> harder to takeover - Activist investors -> temporary concentrated shareholder -> has specific thing in mind; get thing done, rise price of stock, then leave Exit is another option - it is possible in the US because secondary markets are liquid and large, whereas not in other countries where the majority of shares are held by one entity. B. Read “Mutual funds are failing as deal police” (Item 15.15) and “Efficient Markets Need Guys Like Me” (Item 15.14) and answer the following: Summary of 15.15:
Image of page 3

Subscribe to view the full document.

- Public pension funds stand alone as effective monitors of corporate merger activities; when public pension funds hold large stakes, companies are less likely to conduct mergers, and their acquisitions are more likely to succeed - 1% increase in stake held by largest public pension fund investor = 4% decline in frequency of mergers; 8% decrease in value-destroying acquisitions; better in long run after acquisitions - Mutual funds encourage merging - not acting in interest of shareholders; “buying” growth - Mutual funds executives argue that they prefer to “vote with their feet”; instead, Qiu’s study indicates a tendency among mutual funds to hear-no-evil-see-no-evil in mergers (conflict of interest with companies whose services they oversee or seek) 1. If many mergers and acquisitions lower the market value of the companies involved, why do they nonetheless take place? - M&A take place because executives want to “buy earnings or revenue growth rather than generate growth internally and organically”. - Companies may merge or acquire with the intention of increasing the size of their business and their economic power, but this may not translate to efficiency through economies of scale or increased market power. - Interest for the managers - Running a bigger company, get more money - Worst thing they can do: be lousy managers (not firing themselves) 2. The article presents evidence that mutual funds ‘neglect their responsibility to their investors’ by failing to monitor the managers of companies in which they hold substantial stakes; in contrast pension funds (especially public pension funds) seem to do a better job. Can you explain this difference? - Mutual funds have close relationships with the management of the institutions they invest in, so are not incentivized to try to intervene and often look away.
Image of page 4
Image of page 5
  • Spring '14

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes